Star Cement Q4 Results Review - Increase In Capex, Net Debt To Limit Upside: Dolat Capital

Dolat Capital Report

Star Cement Ltd.’s results came in-line, however adjusted profit after tax was above estimates. Revenue grew by 10.2% to Rs 9.1 billion (+40.2% QoQ) led by volume growth of 14.3% YoY at 1.4 million tonne (+45.5% QoQ), which was partially offset by -3.6% YoY in realisation/tonne to Rs 6,474 (-3.6% QoQ). Ebitda grew by 8.1% YoY to Rs 1.8 billion.

However, APAT remained flat at YoY to Rs 884 million due to lower other income coupled with higher depreciation, finance cost and tax.

Star Cement guided volume growth of 18-20% YoY, Ebitda/tonne of ~Rs1,550 and capex of ~ Rs 10 billion for FY25E. It also guided Rs 40 billion capex over next three-four years. We expect revenue/Ebitda/APAT CAGR of 18.7%/32.8%/30.9% over FY24-26E led by 20%/20% volume growth and -0.7%/0.5% realisation growth in FY25E/FY26E.

We decrease our FY25E/FY26E Ebitda estimates by 7.0%/4.1% factoring lower realization. Despite assigning a higher multiple of 10 times versus earlier nine times (considering healthy growth for FY25E/FY26E), a ~20% stock run up since our last result update on Feb, 8, 2024 coupled with increasing capex/net debt leaves limited upside.

Accordingly, we downgrade to ‘Reduce’ rating from Buy with revised target price of Rs 243 based on 10 times consolidated FY26E enterprise value/Ebitda and 50% Capital WIP of FY26E.

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